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Fundamentals of Supply Chain Theory

ISBN: 978-0-470-52130-4
400 pages
August 2011, ©2011
Fundamentals of Supply Chain Theory (0470521309) cover image


An authoritative, quantitative approach to supply chain management

Addressing the need for the study of supply chain management to evolve at the same pace as it's real-world practice, Fundamentals of Supply Chain Theory presents the methodology and foundations of the topic and also demonstrates how recent developments build upon classic models. The authors focus on strategic and tactical aspects of supply chain management, covering a broad range of topics from forecasting, inventory management, and facility location to process flexibility, contracting, and auctions.

Key mathematical models for optimizing the design, operation, and evaluation of supply chains are presented as well as models currently emerging from the research frontier. Following a thorough introduction, the book delves into a discussion of centralized models, including:

  • Forecasting and demand modeling
  • Deterministic inventory models
  • Stochastic inventory models
  • Multi-Echelon inventory models
  • Processes for dealing with uncertainty in inventory optimization and facility location
  • Facility location models
  • Process flexibility

In addition, the authors present decentralized models that involve multiple parties with independent, conflicting objectives, covering topics such as:

  • The bullwhip effect
  • Supply chain contracts
  • Auctions

Each chapter concludes with a set of problems that challenge readers to understand, interpret, and extend the discussed models and algorithms. In addition, extensive appendices provide guidance on writing proofs and also outline helpful formulas related to probability theory, calculus, and algebra.

Extensively class-tested to ensure an easy-to-follow presentation, Fundamentals of Supply Chain Theory is a suitable book for business and engineering courses on supply chain management at the graduate level. The book also serves as an authoritative reference for academics and practitioners working in the areas of operations research, business, management science, and industrial engineering.

This book was named the 2011 Joint Publishers Book of the Year by the Institute of Industrial Engineers.

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Table of Contents

List of Figures xvii

List of Tables xxi

Preface xxiii

1 Introduction 1

1.1 Overview of Supply Chain Management 1

1.2 Levels of Decision Making in Supply Chain Management 3

1.3 Applications of Supply Chain Management 3

2 Forecasting and Demand Modeling 5

2.1 Introduction 5

2.2 Classical Demand Forecasting Methods 6

2.3 Demand Modeling Techniques 11

2.4 Bass Diffusion Model 12

2.5 Leading Indicator Approach 20

2.6 Discrete Choice Models 20

3 Deterministic Inventory Models 29

3.1 Introduction to Inventory Modeling 29

3.2 Continuous Review: The Economic Order Quantity Model 35

3.3 Periodic Review: The Wagner-Whitin Model 54

4 Stochastic Inventory Models 63

4.1 Preliminaries 63

4.2 Demand Processes 65

4.3 Continuous Review: (r, Q) Policies 65

4.4 Periodic Review with Zero Costs: Base-Stock Policies 75

4.5 Periodic Review with Non-Zero Fixed Costs: (s, S) Policies 90

4.6 Policy Optimality 95

5 Multi-Echelon Inventory Models 117

5.1 Introduction 117

5.2 Stochastic Service Models 121

5.3 Guaranteed Service Models 127

6 Dealing with Uncertainty in Inventory Optimization 143

6.1 Introduction 143

6.2 The Risk-Pooling Effect 143

6.3 Postponement 148

6.4 Transshipments 151

6.5 Introduction to Supply Uncertainty 158

6.6 Inventory Models with Disruptions 159

6.7 Inventory Models with Yield Uncertainty 167

6.8 The Risk-Diversification Effect 171

7 Facility Location Models 183

7.1 Introduction 183

7.2 The Uncapacitated Fixed-Charge Location Problem 185

7.3 A Multi-Echelon, Multi-Commodity Model 198

8 Dealing with Uncertainty in Facility Location 209

8.1 Introduction 209

8.2 The Location Model with Risk Pooling 210

8.3 Stochastic and Robust Location Models 223

8.4 A Facility Location Model with Disruptions 228

9 Process Flexibility 241

9.1 Introduction 241

9.2 Flexibility Design Guidelines 243

9.3 A Process Flexibility Optimization Model 247

10 The Bullwhip Effect 255

10.1 Introduction 255

10.2 Proving the Existence of the Bullwhip Effect 258

10.3 Reducing the Bullwhip Effect 269

10.4 Centralizing Demand System 272

11. Supply Chain Contracts 277

11.1 Introduction 277

11.2 Introduction to Game Theory 278

11.3 Notation 280

11.4 Preliminary Analysis 280

11.5 The Wholesale Price Contract 283

11.6 The Buyback Contract 288

11.7 The Revenue Sharing Contract 294

11.8 The Quantity Flexibility Contract 296

12. Auctions 305

12.1 Introduction 305

12.2 The English Auction 307

12.3 Combinatorial Auctions 309

Appendix A: Multiple-Chapter Problems 321

Appendix B: How to Write Proofs: A Short Course 327

Appendix C: Helpful Formulas 337

Appendix D: Langrangian Relaxation 341

Bibliography 349


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Author Information

LAWRENCE V. SNYDER, PhD, is Associate Professor in the Department of Industrial and Systems Engineering at Lehigh University, where he also serves as Co-Director for the Center for Value Chain Research.¿He has written numerous journal articles in his areas of research interest, which include optimization models for supply chain management with a focus on models for the design and operation of robust and reliable supply chains.

ZUO-JUN MAX SHEN, PhD, is Chancellor's Professor in the Department of Industrial Engineering and Operations Research at the University of California, Berkeley. Dr. Shen has published extensively in the areas of integrated supply chain design and management, practical mechanism design, and applied optimization.

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“While geared toward students of supply-chain management at the graduate level, this book is also an authoritative reference for academics and pracitioners working in the areas of operations research, business, management science, and industrial engineering.”  (Inbound Logistics, 1 January 2013)

"I highly recommend the landmark and mathematics based book Fundamentals of Supply Chain Theory by Lawrence V. Snyder, Ph.D., and Zuo-Jun Max Shen,Ph.D., to anyone with an interest in a solid mathematical approach to supply chain management. These readers include students, graduate students, faculty, researchers, business leaders, managers, engineers, and practitioners of supply chain management. This book will provide a very strong mathematical basis for all decision making, through all phases of a supply chain, in any industry." (Blog Business World, 8 January 2011)


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